Learn More About Universal Life Insurance

September 18, 2014

Why learn about universal life insurance?

Choosing the right type of life insurance policy is a big decision not just for you, but for your family and loved ones, too.

Not only is life insurance a hefty financial commitment, but it will help determine how your beneficiaries will be able to navigate any short- and long-term challenges and obstacles brought on by your passing.

Universal life insurance is a bit more complex than more popular policies, such as whole life and term life. So gaining an understanding of all its nuances and why it’s different is critical before deciding whether or not it’s the right option for you.

No, life insurance is not an easy subject to talk about. But it’s important, and having these conversations sooner than later can lift weight from you and all of your loved ones.

How universal life insurance works

Universal life insurance is a form of permanent life insurance, similar to whole life insurance, with a few extra twists and wrinkles. The monthly premiums are level throughout the life of the policyholder. But, when policy holders pay above and beyond their premium amounts, this excess becomes part of the policy’s cash value. In other words, the more you pay, the more that is credited toward your life insurance policy’s bottom line.

Each month, universal life insurance policies accrue interest, around 2 percent depending on the insurance company and a host of other factors. Similarly, costs including insurance protection charges and premiums are debited from a universal life policy account. Policyholders are then able to take out loans and withdrawals so long as they maintain enough funds in the account to cover the monthly deductions.

The benefits of universal of life insurance

The main benefit of a universal life insurance policy is that it offers static premiums for the life of a policyholder, but at a lower rate than a similarly scoped whole life policy.

Additionally, taxes can be deferred on any cash value that a policy accrues as long as specific IRS conditions are met. It also offers the flexibility to increaser the cash value of a policy by overpaying premiums.

Similar to other types of life insurance policies, universal life provides policyholders’ beneficiaries a means of satisfying burial and funeral costs, other short-term obligations, as well serving long-term applications such as income replacement and debt coverage.

Determining if universal life insurance is right for you

All insurance policies come with their own sets of pros and cons. Universal life insurance offers more flexibility than other popular policies, but it’s also a more complex policy that you should carefully research and study. By making careful, well-informed decisions about your life insurance policies, you’ll provide your beneficiaries a reliable safety net and a plan for the future.